13 December 2012

The Economics of Growth

Our system of economics in the US is built around an expectation of continual, virtually unbroken growth. Apple, as does every other company that markets consumer electronics, requires constantly increasing profits to keep their major sources of funding, i.e., the investors who buy their stocks, happy. This means that it is not enough merely to keep selling the same phone or computer when your old one breaks down. They have to create new markets constantly. To achieve this, they have to keep coming up with products you never envisioned at all in your life that you would possibly need and that, once they come out, you think you can't live without. The situation is the trap our entire way of life finds itself in.

When I first came to the US (where I was born) from Argentina (where I grew up) for college, I saw that real estate developers, contractors, builders, and construction workers all considered the expansion of the need for housing as a permanent feature of life, rather than a slim, 20 to 30-year window following World War II, when families and the economy were expanding. They never stopped to think that, if unchecked, their way of doing business would cover all available land, destroying forests, waterways, and agriculture, until all land was covered in housing and nothing was left to feed their inhabitants with. The failure to recognize that housing markets expand and contract led to giving mortgages to people whose income could not justify it, otherwise people would not leave rental housing to existing housing, so that the sellers of existing housing could move to new housing and justify continued construction. No more growth could be squeezed from the lemon. If the vast majority of us decided to make do with an existing house or stay in the one we have, the construction sector would collapse.

Instead, house purchasers and sellers were sold the untruth that housing is an investment that always grows. People kept moving into more expensive houses until the ability to buy even more expensive houses was no longer there. Meanwhile, unregulated derivatives made money from selling off their debt. There is something sinister and seriously wrong with the very idea. Now you see where it has landed us: nearly in another Great Depression. And we are still hampered by politicians who cannot understand that in an economic crisis or just a downturn, you must always stimulate the economy, regardless of the deficit.

Every sector of the economy will reach a state of no more growth or of collapse sooner or later if growth is the only goal pursued. Instead, we must all learn to project what will happen if current trends continue. If we don't like what we see, we must then make changes to what we are doing and plan for changing our business model or for changing activities entirely. We can start with the petroleum industry: end all subsidies immediately and, if the Shells and BPs of this world know what is good for them, plan a rapid changeover to renewable, non-polluting, non carbon-releasing energy.

You may wonder what all this has to do with my series of three youth novels centering around Angela Fournier. It is that she has the habit of looking ahead and is becoming aware that big changes are needed in how we live and puzzled at the non-chalance of the adult world.

You can read more about her at www.strategicpublishinggroup.com/title/Angela1.html

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